Less Bullish: SP500 Levels, Refreshed

Takeaway:Overall, testing and holding 1502-1504 is what the bulls should want. Up every week builds exhaustion.

This note was originally published March 04, 2013 at 10:30 in Macro

POSITIONS: 9 LONGS, 7 SHORTS @Hedgeye

US stocks up for 8 of the last 9 weeks and failed to overcome the weekly closing high (1519) both into Friday’s close and on this morning’s open. Pretty low stress signal, but I want to respect it for what it is, for now. Overall research fundamentals are actually still improving.

Across our core risk management durations, here are the lines that matter to me most:

Immediate-term TRADE resistance = 1530 (YTD closing high)

Immediate-term TRADE support = 1504

Intermediate-term TREND support = 1468

In other words, you’d rather buy them right than buy them at every price. That’s what we are trying to help you with – timing. I’d rather tighten up my net exposure here and wait and watch for 1504 to hold.

Overall, testing and holding 1502-1504 is what the bulls should want. Up every week builds exhaustion.

European Banking Monitor: Italy’s Woes

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor". If you'd like to receive the work of the Financials team or request a trial please email .

Key Takeaways:

* European Financial CDS - Italian banks are wider on the political uncertainty with increases ranging from +19 to +34 bps. On a MoM basis, Italian banks are up 31 to 52 bps. Spanish banks are not far behind. Interestingly, while sovereign swaps in Germany and France were little changed, German and French bank swaps were notably wider WoW. Swaps widened by a median of 8 bps WoW among EU Financials, while equities were down by 3%. The MoM change in EU Financials is up to +13 bps.

* Euribor-OIS Spread – The Euribor-OIS spread widened by 1 bps to 14 bps. While individual swaps are rising, the sentiment around systemic risk remains low, as evidenced by the very modest uptick in the Euribor-OIS spread.

If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.

Matthew Hedrick

Senior Analyst

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European Financials CDS Monitor – Swaps widened by a median of 8 bps WoW among EU Financials, while equities were down by 3%. The MoM change in EU Financials is up to +13 bps. Italian banks were wider on the political uncertainty with increases ranging from +19 to +34 bps. On a MoM basis, Italian banks are up 31 to 52 bps. Spanish banks are not far behind. Interestingly, while sovereign swaps in Germany and France were little changed, bank swaps among German and French banks were notably wider WoW.

Euribor-OIS spread – The Euribor-OIS spread widened by 1 bps to 14 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk.

ECB Liquidity Recourse to the Deposit Facility – Deposits fell by 13 billion euros last week. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB. Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system. An increase in this metric shows that banks are borrowing from the ECB. In other words, the deposit facility measures one element of the ECB response to the crisis.

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03/04/13 10:30 AM EST

Less Bullish: SP500 Levels, Refreshed

Takeaway:Overall, testing and holding 1502-1504 is what the bulls should want. Up every week builds exhaustion.

POSITIONS: 9 LONGS, 7 SHORTS @Hedgeye

US stocks up for 8 of the last 9 weeks and failed to overcome the weekly closing high (1519) both into Friday’s close and on this morning’s open. Pretty low stress signal, but I want to respect it for what it is, for now. Overall research fundamentals are actually still improving.

Across our core risk management durations, here are the lines that matter to me most:

Immediate-term TRADE resistance = 1530 (YTD closing high)

Immediate-term TRADE support = 1504

Intermediate-term TREND support = 1468

In other words, you’d rather buy them right than buy them at every price. That’s what we are trying to help you with – timing. I’d rather tighten up my net exposure here and wait and watch for 1504 to hold.

Overall, testing and holding 1 is what the bulls should want. Up every week builds exhaustion.

KM

Keith R. McCullough Chief Executive Officer

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Takeaway:Neither Italy nor sequestration seem to be having much impact on U.S. Financials. Systemic interbank risk measures remains low for now.

Key Takeaways:

* European Financial CDS - Italian banks are wider on the political uncertainty with increases ranging from +19 to +34 bps. On a MoM basis, Italian banks are up 31 to 52 bps. Spanish banks are not far behind. Interestingly, while sovereign swaps in Germany and France were little changed, German and French bank swaps were notably wider WoW. Swaps widened by a median of 8 bps WoW among EU Financials, while equities were down by 3%. The MoM change in EU Financials is up to +13 bps.

* Euribor-OIS Spread – The Euribor-OIS spread widened by 1 bps to 14 bps. While individual swaps are rising, the sentiment around systemic risk remains low, as evidenced by the very modest uptick in the Euribor-OIS spread.

* U.S. Financial CDS - Mortgage insurers MGIC and Radian continued to tighten, improving 319 and 135 bps, respectively WoW, signaling that sentiment around the ongoing housing recovery is intact. The global U.S. banks were modestly wider WoW on rising concerns around Italy.

1. U.S. Financial CDS - Mortgage insurers MGIC and Radian continued to tighten, improving 319 and 135 bps, respectively WoW, signaling that sentiment around the ongoing housing recovery is intact. The global U.S. banks were modestly wider WoW on rising concerns around Italy.

Tightened the most WoW: MTG, RDN, AGO

Widened the most WoW: MBI, MS, JPM

Tightened the most WoW: RDN, MTG, MET

Widened the most MoM: AON, MMC, BAC

2. European Financial CDS - Swaps widened by a median of 8 bps WoW among EU Financials, while equities were down by 3%. The MoM change in EU Financials is up to +13 bps. Italian banks were wider on the political uncertainty with increases ranging from +19 to +34 bps. On a MoM basis, Italian banks are up 31 to 52 bps. Spanish banks are not far behind. Interestingly, while sovereign swaps in Germany and France were little changed, bank swaps among German and French banks were notably wider WoW.

4. Sovereign CDS – Italian sovereign swaps widened sharply last week on Italian political uncertainty. Italy's swaps widened 36 bps WoW to 286 bps. Spain and Portugal were narrowly wider by 11 bps on sympathy. The rest of the world, however, moved little, with the U.S., Germany, France, Ireland and Japan all flat or narrowly tighter.

9. Euribor-OIS Spread – The Euribor-OIS spread widened by 1 bps to 14 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk.

10. ECB Liquidity Recourse to the Deposit Facility – Deposits fell by 13 billion euros last week. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB. Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system. An increase in this metric shows that banks are borrowing from the ECB. In other words, the deposit facility measures one element of the ECB response to the crisis.

11. Markit MCDX Index Monitor – Last week spreads widened by 1 bp, ending the week at 93 bps versus 92 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1.

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